What we are looking for

  • USD claws back losses ahead of CPI: The USD is reclaiming lost ground on major forex apart from the JPY which has jumped overnight.
  • Indices are mixed to positive: European indices are playing catch-up on a strong Wall Street close last night. However, US futures are looking more cautious this morning and are a shade lower. This points to consolidation ahead of the US CPI.
  • Commodities rebound: Although oil is flat, there is a decent early move higher on silver, with gold slightly higher too. 
  • Data traders: The US CPI will be massive for USD traders and the impact is likely to be seen across major markets. A downside surprise would be USD negative but also positive for risk appetite.


There has been a risk-positive bias to market sentiment through the early sessions of the year. However, today’s US CPI inflation data will likely determine whether this can continue. The last two months of soft US inflation have helped to fuel a strong recovery in risk assets, whilst also weighing on the USD. If this trend of falling inflation continues, especially at a core level, then we can expect that this will add further momentum to the risk rally. It would likely drive US Treasury yields and the USD lower. It would also help metals prices be higher and add a further boost to already strong equity markets.

US inflation looms large on the economic calendar today. US CPI is expected to fall on both core and headline basis. MoM inflation is expected to be flat, with the core +0.3% higher than in November. Downside surprises would further fuel the arguments for a less hawkish Fed stance and firm expectations of a 25bps hike by the Fed in February. Weekly Jobless Claims are forecast to tick slightly higher to 215,000, back to around the four-week average.

Today’s news

Market sentiment is cautious ahead of US CPI: There is a mild recovery on USD across major forex (aside from the strengthening JPY). Although European indices are higher, this is a catch-up on the Wall Street close, US futures are a shade lower. Silver is the main anomaly, showing gains of +1%.

Treasury yields fall back: Longer-dated yields are falling more than shorter duration. The US 10-year yield is -4bps with the US 2-year yield -1bps. -

Fed member looking at a 25bps hike in February: Boston Fed President, Susan Collins (2025 voter, centrist) may not have a vote in 2023, but she prefers a 25bps hike in February. She is very slightly hawkish on the spectrum and can be considered a decent gauge of the consensus on the FOMC. 

Chinese inflation ticks higher as expected: The CPI has increased to +1.8% (from 1.6% in November). This was in line with the consensus. The PPI has rebounded slightly to -0.7% (from -1.3%) although the pick-up was not as much as expected.

JPY strengthens on potential BoJ action: JPY has strengthened overnight on reports out of Japan that the Bank of Japan may not see its widening of the yield curve control band on the 10-year yields as being enough. It could widen it further beyond +0.50% at the meeting next week.

Cryptocurrencies rally hard: Despite the relative caution coming ahead of the US CPI today, there is a strong run higher on crypto. Bitcoin is +3.1% at $18100, with Ethereum +4.0% at $1396.

Economic Data:

  • US CPI (at 13:30 GMT) Headline US CPI inflation is expected to be 0% MoM in December, which would reduce YoY inflation to 6.5% (from 7.1% in November). Core inflation is expected to be +0.3% MoM and reduce YoY inflation to 5.7% (from 6.0%).
  • US Weekly Jobless Claims (at 13:30 GMT) Claims are expected to increase slightly to 215,000 (from 204,000 last week).

Major markets outlook

Forex: USD is clawing back some previous losses, especially versus pro-cyclical currencies (AUD and NZD). However, the JPY is the main outperformer.

  • EUR/USD has continued to edge higher above the old December high of 1.0735 but is just starting to consolidate ahead of the US CPI. This stalling is coming under the resistance of the key May 2022 high of 1.0785. There is still a positive configuration to momentum with the RSI in the 60s again. This suggests that weakness remains a chance to buy, with initial support around 1.0660/1.0710. The importance of the 1.0440/1.0495 breakout support band continues to grow. Above 1.0785 opens 1.0935 as the next resistance.
  • GBP/USD has been stalling in the recovery in the past few sessions. The outlook remains positive after the breakout above 1.2075/1.2125 but the lack of traction in the move is a concern as the RSI momentum is only lukewarm only slightly above 50. This could be reflective of a developing ranging formation. Above 1.2210 resistance is needed to open upside towards a test of the December high at 1.2445. Support at 1.1840 remains key.
  • USD/JPY has been less decisive in its move lower in recent sessions. The breaching of the two-and-a-half-month downtrend has been a warning, with daily RSI momentum slightly less bearish too. However, the market has dropped back once this morning and a close below 131.30 would open the door to a retest of the 129.50 low. The 21-day moving average (c. 133.15) remains a key gauge for the outlook. Initial resistance is at 132.86 with the overhead supply at 133.60/134.75 being crucial.

Commodities: Gold continues higher, with silver also trying to regenerate a bullish outlook. , but within a consolidation. Oil shot higher yesterday but is approaching resistance again.

  • Gold is ticking higher once more this morning, back above $1880 in a move that keeps a test of $1910 resistance on the table. The price continues to climb higher within what is now a two-month uptrend channel. We remain bullish on gold medium term but are mindful of chasing the market higher. The daily RSI is pushing towards 70 again and the potential for a near-term pullback is growing. We look to use near-term weakness as a chance to buy with initial support at $1859/$1867.
  • Silver has rebounded strongly today, but taken over recent weeks, the move needs to be viewed with a degree of caution, especially following yesterday’s bull failure. The moves higher have been consistently failing around $24.10/$24.50 in recent weeks. This has also come with faltering momentum as the RSI has drifted back towards 50. There is a growing sense of consolidation range forming Buyers are consistently supporting around $23.11/$23.50, but the sellers return around $24.10/$24.55.
  • Brent Crude oil has moved strongly higher as a near-term recovery has kicked in again. The unwinding of the daily RSI to 50 (similar to the December unwind) suggests that this is an important medium-term crossroads. There is resistance between $83.50/$86.75 which will be a gauge for the market now. Since June, near-term rallies have consistently been seen as a chance to sell. Above $86.75 would seriously question this outlook. Initial support is at $81.15.

Indices: Wall Street has finally joined in with the rally on European indices. Can this continue through US CPI?

  • S&P 500 futures have moved decisively above the old pivot band 3912/3945 which now lends a positive outlook within the medium-term range. The immediate test is now of the primary downtrend of 2022 (comes in around 4020 today). The bulls will be looking higher towards a test of the medium-term range with the resistance between 4050/4100. Momentum has improved with the RSI above 50, and with upside potential in the near three-month band between 40/65The pivot area between 3912/3945 is now supportive near term. Below 3891 would turn the market corrective again.

  • German DAX has continued higher, through the resistance of an old long-term pivot band between 14700/14800. This is a bullish move that is coming with strong momentum, albeit becoming slightly stretched above 70 on the daily RSI. Back above the psychological 15000 is also an 11-month high. There is good support now at the breakouts between 14604/14706. Momentum is positively configured and we would still look to buy into supported weakness. The next key resistance is 15550/15740. Initial support is 14795/14830.
  • FTSE 100 has pushed back higher to hit another five-year high (above the previous key high of 7747). This comes with strong momentum with the RSI around 70. Therefore, although momentum is strong it is becoming slightly stretched now. Initial support for a pullback is 7671/7695 and if this can hold then it would be bullish for moves to buy into weakness.

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